Most international trade moves by ocean, but when it comes to counterfeit goods, airfreight is king. And that means more regulatory steps to follow for legitimate shippers and logistics providers.
More than 90% of merchandise seizures for intellectual property rights violations for the fiscal year ending September 2018 were in the express consignment and international mail environment, according to the latest statistics released this month by U.S. Customs and Border Protection.
Air express facilities accounted for $549.2 million of the $1.4 billion in fake goods confiscated, while another $197.3 million worth of copycat goods were intercepted at the nation’s five international mail centers, the agency reported.
According to CBP’s IPR report, the most common fake items by value continued to be watches and jewelry, with wearing apparel the most seized item by quantity. China and Hong Kong were the top origin for 87% of the total IPR seizures, which represented an estimated street value of $840.3 million. Malaysia ($4.7 million) and Pakistan ($2.8 million) replaced Thailand and Singapore in the top 10 list of source countries by value.
Daunting Task
The numbers illustrate the challenge customs and mail authorities have policing the air cargo market in the midst of the e-commerce explosion. The government is only capturing a small percentage of fraudulent shipments, according to Customs and industry officials.
Online and mobile sales have caused a spike in the shipment of small packages, which are much more difficult for authorities to track and inspect. In fiscal year 2018, 161 million express shipments and 475 million packages moved through the international mail system into the U.S.
Many criminal organizations are shipping illicit goods in small packages because they perceive there is a lower risk of interdiction and less severe consequences if a shipment is detained. One reason is that a majority of express and mail shipments fall under the de minimis threshold of $800, which was increased from $200 by Congress in 2016.
De minimis refers to low-value shipments listed on a freight carrier’s manifest that are admitted without taxes, tariffs or formal customs procedures. With the de minimis level raised to $800 — one of the highest in the world — more stuff can be put in a single package without incurring duty. There is also less paperwork filed with lower-value small shipments, which means Customs receives less actionable data for risk assessment and targeted inspections than containerized freight.
Meanwhile, air parcel too has become the preferred conduit for synthetic opioids from China and other foreign sources. Last week the U.S. Department of Treasury listed three Chinese nationals for running international drug trafficking operations that import deadly narcotics, such as fentanyl, into the U.S. One of the enterprises, the Zheng drug-trafficking organization, “touted its ability to create custom-ordered drugs and avoid detection from customs and law enforcement officials when shipping the drugs through express mail and the U.S. Postal Service,” the department said in a statement.
International online drug dealers are using the USPS because the government doesn’t have the same technology and processes to track individual small shipments as couriers FedEx, UPS and DHL, The Washington Post reported Aug. 23.
CBP is trying to implement an e-commerce strategy it rolled out 18 months ago to address the vulnerability from e-commerce shipments. Under the plan, the agency intends to expand its risk management and enforcement capabilities. Its wish list includes:
- Acquiring sophisticated software for data analytics and soliciting more advance information from supply chain parties to identify suspicious packages;
- Developing industry partnerships and providing trade incentives to companies with proven internal security processes, similar to what is done in the Customs-Trade Partnership Against Terrorism;
- Improving interagency and international cooperation on targeting violators, information sharing and developing commerce standards;
- Modernizing inspection procedures, including new training methods for offices and realigning staff allocation;
- And ramping up enforcement and penalties to compel compliance.
An upcoming regulation, for example, will require customs brokers who handle e-commerce shipments to gather much more information, including pictures, about the importer of record to verify they are legitimate companies.
On top of security and safety, CBP has the task of making sure customs entries don’t falsify the value of the listed goods to avoid tariffs. It’s all a tall order for CBP because of the sheer volume of parcels and its limited resources
A lot of CBP’s budget and personnel have been directed by the Trump administration to the southern border to deal with immigration.
“It’s a massive task and I’m not sure that with the current strategy and the resources available Customs is up to the task right now,” said Bob Ibriani, executive vice president of international at Winnsboro, Texas-based Team Worldwide and a CBP advisory panel participant.
Michael Mullen, Executive Director, Express Association of America
The Freight Waves article of August 28th, Express air dominates as pathway for counterfeit goods, has a misleading title which is not supported by the facts cited in the article. The article states that express consignment and the mail are responsible for 90% of the IPR seizures. In the next sentence, the article states that express accounts for $549.2 million of the total $1.4 billion of seizures, which means that only 39% of the IPR seizures by value are in the express industry, while the majority are in other modes of transportation.
It makes no sense to compare the number of seized shipments across transportation modes, which is where the 90% number is derived. When you do that, you are saying that one knock-off NFL jersey in a small express package is the equivalent of an ocean container full of thousands of knock-off NFL jerseys, as both the express package and the ocean container are counted as one shipment. The only reasonable basis for comparison is the manufacturer’s suggested retail price (MSRP) of the goods seized. By this measure, the seizures in the express industry have been well less than half for as long as U.S. Customs and Border Protection (CBP) has been issuing the statistics.
Also, CBP can control the percentage of seizures in any one mode by focusing their IPR blitz operations on that mode and conducting fewer IPR blitz operations elsewhere. CBP tends to focus on the express industry, which has a long track-record of investment in resources such as manpower and technology that helps to support government enforcement efforts. For instance, we assign additional personnel, at our own expense, to work with the blitz teams and ensure they have rapid access to all shipments they desire to inspect, so those operations are highly productive for CBP. CBP focuses less on other modes of transportation, where locating a single package is a much more difficult task, especially in the mail environment.
EAA members, DHL, FedEx, and UPS, provide targeting-quality information to CBP on all incoming shipments, which allows the agency to segment out shipments that are high risk for IPR violations and conduct further interdiction activities. EAA members require customers to provide the extensive information required by the Trade Act of 2002 in order to ship a package through their networks. When any doubt about a shipment exists, a CBP request will trigger access to the full body of information available on any shipment, including purchase orders, invoices and shipping documents. This information is invaluable in detecting counterfeits, and no other major logistics firms or the post office can provide this data to CBP electronically. EAA Members’ Track and Trace systems allow packages CBP identifies as suspicious to be removed from traffic flows and provided to CBP Officers for further examination immediately.
In addition, EAA members hold frequent meetings with the Intellectual Property Rights Coordination Center (IPR Center), managed by Immigration and Customs Enforcement and CBP, to exchange information on current counterfeit threat streams and share best practices on interdicting IPR violations. The coordination with the IPR Center has intensified and expanded to include other entities in the e-commerce supply chain over the past two years. EAA members maintain links to the IPR Center on their websites for reporting IPR violations.
In summary, the express industry takes second place to no one in our efforts to assist CBP’s IPR interdiction efforts, and this support is the main reason why the seizures in the express industry are as high as they are. The Freight Waves article of August 28th takes a naïve approach, which is not supported by the facts, and fails to present a complete picture to your readers.